Legal counsel for nonprofit organizations
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Mark Zuckerberg’s Unconventional Approach to Philanthropy

Posted on by bentakis

This week, Facebook founder Mark Zuckerberg dropped a bombshell when he announced his plan to donate 99% of his Facebook stock (currently valued at $45 billion) to charitable causes. It was not long until critics started voicing their concerns. While some of the concerns were focused on the societal impact of such massive diversions of wealth to private charities rather than the government, most of the skeptics have taken issue with Zuckerberg’s unconventional choice of structure: a for-profit limited liability company.

The more conventional choice for a charitable endeavor of this scale would have been to form a 501(c)(3) private foundation, like the Bill & Melinda Gates Foundation. As a lawyer for nonprofits, I have an affinity for the 501(c)(3) sector, and believe that the rules governing private foundations serve an important public purpose. For example, the self-dealing rules ensure that private foundations are not pilfered by their founders or their family members. The Form 990-PF provides a much-needed layer of transparency. And the 5% payout rule provides an incentive to put foundation money to use in the charitable sector rather than let it accumulate indefinitely.

Yet, I am not troubled by Mark Zuckerberg’s choice of the LLC structure. This move gives no particular financial benefit to Zuckerberg (indeed, if Zuckerberg were looking for a quick tax break, he could have simply donated his Facebook stock directly to a 501(c)(3) public charity). Rather, he is giving himself flexibility to approach social issues in ways that may be restricted or limited for 501(c)(3) private foundations. The LLC structure lets Zuckerberg engage in political and lobbying activity, invest in socially conscious businesses without worrying about the program-related investment, jeopardizing investment, and excess business holdings rules, and establish joint ventures and partnerships of all kinds.

Zuckerberg’s choice highlights a key consideration that all would-be social entrepreneurs should take seriously: the need to experiment and evolve your approach to philanthropy. Zuckerberg is a 31-year old businessman, and it may take him years to figure out how he can have the most impact on the world given his unique perspective, talents, assets and connections. Zuckerberg should not necessarily be burdened by the private foundation rules at this stage when his vision is not fully formed.

Down the road, it might make sense for Zuckerberg to establish a 501(c)(3) private foundation like the Gates Foundation. But the freedom to experiment now will only strengthen his future efforts at philanthropy, and this could create the biggest benefit to the public in the long term.

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